FX Reform Pays Off Nigeria’s Foreign Exchange Turnover Surges 56% as CBN Deepens Market Liquidity

Nigeria is reaping early rewards from its sweeping foreign exchange (FX) market reforms, which have helped drive a 56.4% jump in monthly turnover, according to the Central Bank of Nigeria (CBN). The data points to a more liquid, efficient currency market, a cornerstone of the government’s broader effort to restore macroeconomic stability and attract global investment.

At a recent address, Mohammed Abdullahi, Deputy Governor for Economic Policy at the CBN, revealed that turnover in Nigeria’s FX market has climbed markedly to $8.6 billion, up from $5.5 billion in 2024. He attributed the improvement to a combination of market-friendly interventions: an order-based quotation system; a unified rate structure; and improved remittance flows all of which have deepened market participation and reduced the distortions of multiple FX windows. (Nairametrics)

Why This Matters

1. Enhanced Liquidity and Market Confidence: A more active FX market allows importers, exporters, and investors to access foreign currency more reliably, reducing the premium costs that often plagued the system under tighter supply. This, in turn, lowers transaction risk and promotes confidence.
2. Rising External Reserves: The CBN claims that its reform program has contributed to a build-up of reserves, helping the country to withstand external shocks. Higher FX turnover may be fueling reserve accumulation by supporting broader capital inflows.
3. Improved Investor Sentiment: As the FX market stabilizes, it becomes more attractive to foreign portfolio investors, who now see reduced currency risk and better pricing transparency. With Nigeria competing for capital globally, this is a vital signal to long-term investors.
4. Funding for Structural Growth: Greater FX liquidity strengthens Nigeria’s ability to import critical inputs machinery, raw materials needed to sustain industrial and infrastructure growth. Over time, improved import capacity can support Nigeria’s drive toward economic diversification.

Risks and Challenges

Even as the FX reforms yield gains, analysts caution that the path is not free of risk:

• Volatility Risk: If global conditions shift For example, a drop in remittances or a sharp oil price decline FX liquidity could evaporate quickly. Maintaining turnover will require continued coordination between fiscal and monetary authorities.
• Speculative Flows: A more liquid FX market may attract speculative capital rather than stable, long-term investment, which could increase vulnerability to sudden reversals.
• Subsidy Pressures: If the government reintroduces fuel or forex subsidies, they could undermine the hard-earned gains in transparency and efficiency.
• Regulatory Oversight: Ensuring that FX market reforms do not lead to manipulation or abuse is essential; regulatory oversight must remain strong and proactive.

Broader Implications for Nigeria’s Economy

• Exporters: Businesses that export goods benefit from more predictable access to foreign currency, allowing them to plan production, manage working capital, and invest in scaling operations.
• Importers and Manufacturers: With improved FX access, manufacturers reliant on imported inputs may reduce working-capital risk, stabilize margins, and revisit long-term growth projects.
• Consumers: Greater FX market stability may eventually filter into more stable import prices on key goods (electronics, pharmaceuticals, machinery), though local inflation pressures remain.
• Policy Makers: The success of the reforms bolsters the case for further policy integration aligning monetary policy, fiscal strategy, and structural reforms (e.g., industrialization, road and power infrastructure) to sustain gains.

What to Track Going Forward

• Monthly FX turnover trends: Will the pace of turnover continue to rise or plateau?
• External reserves: Is Nigeria’s reserve buildup sustained or volatile?
• Capital inflows: Are foreign portfolio and direct investments increasing alongside FX liquidity?
• Transparency and regulatory risk: Are market participants using the system fairly, or are speculative elements emerging?
• Macro stability: How will inflation, interest rates, and growth respond to improved FX dynamics?

Nigeria’s 56% surge in FX turnover is a strong early indicator that recent CBN reforms are working. The increased liquidity in the foreign-exchange market is building confidence, strengthening reserves, and creating a more stable foundation for investment. But to fully translate these gains into lasting growth, policy makers must guard against volatility, speculative capital, and reversals. For now, Nigeria may be turning a corner but the next phase of reforms will test its resilience and ambition.